Ofgem has approved a pair of amendments to the Connection and Use of System Code (CUSC) that will allow distribution network operators (DNOs) to contribute towards the costs of transmission assets if they stand to benefit from their presence.
The modifications were proposed by SSE following Ofgem’s decision in principle to allow the distribution arm of Scottish and Southern Electricity Networks (SSEN) to chip in for a new 600MW transmission link to the Shetland Islands.
The distribution business was expected to contribute £250 million to the project, which at the time in December was estimated to cost £709 million.
CMP337 clarifies that DNOs contributions should be subtracted from the “actual project costs” used to determine transmissions charges, ensuring that they are not recovered twice over through both transmission and distribution charges, whilst CMP338 defines a DNO’s contribution as a “cost adjustment” within the code.
Both modifications were granted urgent status by Ofgem and approved by a majority of the CUSC panel.
The regulator has also rejected a related modification proposed by EDF Energy that would limit the local circuit charges paid by generators connected indirectly to the transmission network to only cover costs that are relevant to their requirements.
The proposal document for CMP303 gave the example of a new transmission line being installed to enable a generator on an island to export power back to the mainland.
It said the transmission owner may want to install a bidirectional connection to ensure the security of supplies on the island, but the generator only needs to transmit power one way and therefore should not be liable to pay the additional costs incurred for a two-way link.
Ofgem rejected the modification, including several alternative versions, on the grounds that the assessment of which costs should be excluded when calculating generators’ charges could “introduce subjectivity and undermine cost reflectivity”. This was despite the CUSC panel voting in favour of both the original proposal and one of the alternatives.
In April, the regulator granted preliminary approval to the Shetland link, which would see the islands connected to the mainland power grid for the first time, on the condition that SSE gave the go-ahead the 475MW Viking windfarm as it did two months later in June. It also revealed that SSEN had lowered the estimated price tag for the connection to £672 million.
The project had already received conditional approval once already but lost it after the Viking windfarm failed to secure an agreement in the latest Contracts for Difference auction in September 2019.